Stephen Bainbridge's Journal of Law, Religion, Politics, and Culture

12/08/2011

Why is Eric Cantor delaying passage of the STOCK Act and its ban on Congressional insider trading?

Here at PB.com, we have been actively following the progress of the STOCK Act through Congress. As regular readers know, that Act would clarify current law to make it clear that insider trading by Congressmen is illegal. (As to why current law doesn't apply to insider trading by members of Congress, see my article Insider Trading Inside the Beltway.)

On the Senate side, things seem to be going well. I now have reason to believe that Senator Kirsten Gillibrand's bill will end up being one I can support and likely will be an improvement on the version submitted by Senator Scott Brown.

On the House side, however, the politics of the bill have taken a surprising and, indeed, disturbing twist. First, as Peter Schweizer -- author of the powerful expose Throw them All Out, which deserves much of the credit for getting the current political activity started -- noted, the House side is being "led" by Rep. Spencer Bachus.

Among Rep. Bachus’s list of experts were Indiana University Professor Donna Nagy, Jack Maskell of the Congressional Research Service and Robert Walker, who formerly served as a lawyer on the House Ethics Committee. All three argued that current laws are fine as written. However, when Enforcement Division Director of the Securities and Exchange Commission Robert Khuzami was asked whether the SEC had ever brought action against any member of Congress or congressional staffers for insider trading, Mr. Khuzami confessed that if they had he wasn’t aware of it.

Rep. Bachus’s shell game is hardly a surprise. In the wake of the 60 Minutes investigation and my book’s revelations about Rep. Bachus’s 40 stock options trades during the 2008 financial crisis, he is desperately trying to reposition himself as a reformer, going so far as to now announce a plan to have members of Congress establish blind trusts. That is great as window dressing, but why not give the American people a clear picture of what is actually going on in Washington?

For starters, instead of stacking the deck, Rep. Bachus should have had a panel of experts who hold diverse views. Why not call a witness like UCLA Law Professor Steve Bainbridge who, in addition to being an expert on insider trading laws, has sounded the alarm bells for years on the insufficiency of our current laws? [If they had asked, I would have been unable to attend. OTOH, they didn't ask.]

Moreover, why not have an honest discussion about the fact that the SEC has never pursued congressional insider trading cases? We know the answer. Congress approves the SEC budget every year. And remember what happened when the FBI investigated Rep. William Jefferson for taking bribes? Congress threatened to slash the FBI budget! ...

Rather than explain how and why he has spent years enriching himself through his aggressive options trading, Rep. Spencer Bachus feigned victimhood and cast himself as just an Average Joe who likes to trade stocks. The Alabama congressman must have winced when Mr. Khuzami explained during his testimony that insider traders love trading options because they can leverage their position!

If Politico's reporting is to be trusted, however, we now learn that Bachus' rush to recast himself as a reformer has gotten him into hot water with House Majority Leader Eric Cantor:

In a Wednesday meeting described by one source as “extremely direct” and by another as “very blunt,” Cantor (R-Va.) ripped into Bachus, explaining in no uncertain terms that it was unacceptable for Bachus to mark up the bill without having run it by GOP leaders and other chairmen with jurisdiction over its provisions. ...

Bachus, clearly anxious to create a good-government portfolio in the wake of a “60 Minutes” piece on his stock trades — some of which netted five-figure gains in a single day — put the STOCK Act on the fast track. ... Cantor delivered the cease-and-desist order on behalf of GOP leaders, other chairmen and rank-and-file lawmakers on both sides of the aisle who were concerned that Bachus could help give the bill life by having the committee approve it. ...

Cantor apparently prefers to whack Bachus behind closed doors, as his office offered up a rather understated version of events when asked about the exchange.

“A large group of bipartisan members of the committee felt the legislation was flawed and being recklessly moved solely in response to media pressure,” Cantor spokesman Brad Dayspring said. “Members of both sides of the aisle wanted more time to gather information and develop appropriate alternatives.”

The bill’s supporters are still hoping that public pressure will force Republican leaders to take it up. But if private pressure is any indication, Bachus is being pushed in the other direction.

Why is Congressman Eric Cantor blocking this basic good government reform? Does Cantor believe that Congressmen should be allowed to inside trade with impunity? Does Cantor not realize that Congressional insider trading raises serious issues of ethics, corruption, and even the potential for bribery? Does Cantor not see that the current de facto exemption of Congress from the draconian penalties for insider trading it has imposed on everybody else is fundamentally unfair? (I rehearse the arguments in favor of the STOCK Act in this post.)

Shame on Eric Cantor. Cantor's phone number is 202.225.4000. His email contact form is here. Tell him to get off the pot and move the STOCK Act forward.

Comments

Why is Eric Cantor delaying passage of the STOCK Act and its ban on Congressional insider trading?

Here at PB.com, we have been actively following the progress of the STOCK Act through Congress. As regular readers know, that Act would clarify current law to make it clear that insider trading by Congressmen is illegal. (As to why current law doesn't apply to insider trading by members of Congress, see my article Insider Trading Inside the Beltway.)

On the Senate side, things seem to be going well. I now have reason to believe that Senator Kirsten Gillibrand's bill will end up being one I can support and likely will be an improvement on the version submitted by Senator Scott Brown.

On the House side, however, the politics of the bill have taken a surprising and, indeed, disturbing twist. First, as Peter Schweizer -- author of the powerful expose Throw them All Out, which deserves much of the credit for getting the current political activity started -- noted, the House side is being "led" by Rep. Spencer Bachus.

Among Rep. Bachus’s list of experts were Indiana University Professor Donna Nagy, Jack Maskell of the Congressional Research Service and Robert Walker, who formerly served as a lawyer on the House Ethics Committee. All three argued that current laws are fine as written. However, when Enforcement Division Director of the Securities and Exchange Commission Robert Khuzami was asked whether the SEC had ever brought action against any member of Congress or congressional staffers for insider trading, Mr. Khuzami confessed that if they had he wasn’t aware of it.

Rep. Bachus’s shell game is hardly a surprise. In the wake of the 60 Minutes investigation and my book’s revelations about Rep. Bachus’s 40 stock options trades during the 2008 financial crisis, he is desperately trying to reposition himself as a reformer, going so far as to now announce a plan to have members of Congress establish blind trusts. That is great as window dressing, but why not give the American people a clear picture of what is actually going on in Washington?

For starters, instead of stacking the deck, Rep. Bachus should have had a panel of experts who hold diverse views. Why not call a witness like UCLA Law Professor Steve Bainbridge who, in addition to being an expert on insider trading laws, has sounded the alarm bells for years on the insufficiency of our current laws? [If they had asked, I would have been unable to attend. OTOH, they didn't ask.]

Moreover, why not have an honest discussion about the fact that the SEC has never pursued congressional insider trading cases? We know the answer. Congress approves the SEC budget every year. And remember what happened when the FBI investigated Rep. William Jefferson for taking bribes? Congress threatened to slash the FBI budget! ...

Rather than explain how and why he has spent years enriching himself through his aggressive options trading, Rep. Spencer Bachus feigned victimhood and cast himself as just an Average Joe who likes to trade stocks. The Alabama congressman must have winced when Mr. Khuzami explained during his testimony that insider traders love trading options because they can leverage their position!

If Politico's reporting is to be trusted, however, we now learn that Bachus' rush to recast himself as a reformer has gotten him into hot water with House Majority Leader Eric Cantor:

In a Wednesday meeting described by one source as “extremely direct” and by another as “very blunt,” Cantor (R-Va.) ripped into Bachus, explaining in no uncertain terms that it was unacceptable for Bachus to mark up the bill without having run it by GOP leaders and other chairmen with jurisdiction over its provisions. ...

Bachus, clearly anxious to create a good-government portfolio in the wake of a “60 Minutes” piece on his stock trades — some of which netted five-figure gains in a single day — put the STOCK Act on the fast track. ... Cantor delivered the cease-and-desist order on behalf of GOP leaders, other chairmen and rank-and-file lawmakers on both sides of the aisle who were concerned that Bachus could help give the bill life by having the committee approve it. ...

Cantor apparently prefers to whack Bachus behind closed doors, as his office offered up a rather understated version of events when asked about the exchange.

“A large group of bipartisan members of the committee felt the legislation was flawed and being recklessly moved solely in response to media pressure,” Cantor spokesman Brad Dayspring said. “Members of both sides of the aisle wanted more time to gather information and develop appropriate alternatives.”

The bill’s supporters are still hoping that public pressure will force Republican leaders to take it up. But if private pressure is any indication, Bachus is being pushed in the other direction.

Why is Congressman Eric Cantor blocking this basic good government reform? Does Cantor believe that Congressmen should be allowed to inside trade with impunity? Does Cantor not realize that Congressional insider trading raises serious issues of ethics, corruption, and even the potential for bribery? Does Cantor not see that the current de facto exemption of Congress from the draconian penalties for insider trading it has imposed on everybody else is fundamentally unfair? (I rehearse the arguments in favor of the STOCK Act in this post.)

Shame on Eric Cantor. Cantor's phone number is 202.225.4000. His email contact form is here. Tell him to get off the pot and move the STOCK Act forward.